The Motley Fool: Fannie and Freddie's work

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January 15, 2013

Q: What are Fannie Mae and Freddie Mac, and what do they do? - John G., Petaluma, Calif.

A: Originally known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., Fannie Mae and Freddie Mac are government-sponsored enterprises, or GSEs, that support affordable homeownership by making mortgage money available.

Instead of actually loaning money, they operate in the secondary market, buying and guaranteeing qualifying mortgages from lenders so those lenders can turn around and lend more money to more borrowers. The GSEs then package together bundles of loans and "securitize" them as "mortgage-backed securities" so they can be sold and traded.

Fannie Mae was created in 1938 and Freddie Mac in 1970. During the financial crisis in 2008, both were put under the conservatorship of the Federal Housing Finance Agency.

Investing for 14-year-olds

Q: How should I invest my money? I'm 14. - C.T., Bloomington, Ill.

A: Any money for college shouldn't be in stocks, as the market could drop in the short term. Long-term investments (those for five or more years) can patiently ride out downturns. Short-term money is best kept in safer places, such as CDs. (Look up good CD rates at www.bankrate.com.)

You're smart to start young. If you invest $500 in a stock index fund, and it earns the market's historical average annual return of about 9 or 10 percent, in 30 years, when you're only 44, it will top $6,500. When you're 65, it'll top $40,000. Add to it over the years, and you're looking at early retirement as a millionaire!

Learn more at teenvestor.com, teenanalyst.com, betterinvesting.org, and in our book "The Motley Fool Investment Guide for Teens" by David and Tom Gardner with Selena Maranjian (Touchstone, $15).

Foolish Trivia

Name that company

I was born in California in 1982, after my founder sold his winery for millions and became interested in hickory-shafted golf clubs. My revenue topped $10 million by 1989, and now I rake in more than $800 million annually, selling apparel and equipment in more than 110 nations. My main brands are my own name, Odyssey and uPro. One of my best-selling drivers is named after a big German World War I howitzer gun. Debuting in 1991, it was the first wide-body stainless steel wood. My "Staff Pros" include Phil Mickelson, Annika Sorenstam and many others. Who am I? Last Week's Answer: ConAgra Foods.

Hasbro's (Nasdaq: HAS) portfolio includes classics such as Nerf, Play-Doh and Twister, as well as Parker Brothers games such as Monopoly.

Its dividend recently yielded 4 percent, and the dividend's five-year average annual dividend hike has been a hefty 16.2 percent. The stock has been a grower, too, averaging 6 percent annual growth over the past 20 years and 15 percent over the past decade.

As with any company, there are risks. Disney recently bought Lucasfilm (the company behind "Star Wars"), Pixar and Marvel, making it a huge partner in Hasbro's movie tie-in strategy and a possible troublemaker if it starts playing hardball. Meanwhile, Zynga's Words With Friends is very close in game play to Hasbro's Scrabble, and Zynga may look to do the same with other Hasbro games.

Hasbro does make the board game version of Words With Friends, so the two are cooperating. Tablets are a new threat to old-fashioned games.

Hasbro keeps innovating, though. For instance, its new Monopoly Zapped brings the game into the digital era by integrating it with an iPad app that acts as banker and brings in mini-games.

Consider adding Hasbro to your portfolio or watch list. You might also look into its bigger rival, Mattel. (The Motley Fool owns shares of Disney and its newsletters have recommended Disney, Hasbro and Mattel.)